Why H&R Block, Dycom Industries, and Otonomy Slumped Today

The stock market climbed higher on Wednesday, with all three major benchmarks advancing. The tech-heavy Nasdaq Composite led the way with gains of more than 1%. Investors shrugged off geopolitical concerns, and focused instead on the strength of the domestic economy. The U.S. Commerce Department released data that showed better-than-expected economic growth, with gross domestic product (GDP) increasing at a 3% rate, stronger than previously estimated. In spite of solid gains by the major indexes, company-specific news weighed on certain stocks, and H&R Block, Inc. (NYSE: HRB), Dycom Industries, Inc. (NYSE: DY), and Otonomy, Inc. (NASDAQ: OTIC) were among the worst performers of the day. Below, we'll look more closely at these stocks to tell you why they did so poorly.

H&R gets its block knocked off

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Shares of H&R Block fell 8.3% following the release of the company's fiscal first-quarter financial results. The tax preparation giant reported revenue grew to $138 million, an increase of 10% over the prior-year quarter, exceeding analysts' expectations of $129 million. The company's net loss of $0.63 per share was $0.07 worse than year-ago period, and missed expectations of $0.62-per-share loss. The loss was not surprising, as the tax preparation business is highly seasonal. The results were in line with the company's expectations, and Block plans to pay its quarterly dividend of $0.24 on Oct. 2.

Investors were likely expecting better results, given that H&R Block shares had gained 27% year to date prior to the earnings release, and may believe that the stock had gotten ahead of itself.

Dycom's guidance disappoints investors

Dycom Industries stock fell 7.3% in the wake of the company's fiscal fourth-quarter earnings release. The telecommunications infrastructure specialist said that revenue fell to $780.2 million, down 1.1% from year-ago levels, and below expectations of $798.8 million. Worse still, revenue was below management's own forecast between $780 million and $810 million. Net income fell 10.4% from the prior-year period, producing adjusted earnings of $1.47 per share, slightly above the $1.44 expected by analysts.

The results alone didn't account for the sell-off. Investors were likely disappointed by Dyson's weak forecast for the coming quarter, with the midpoint of guidance pointing to earnings per share of $0.89 on revenue of $730 million, far lower than analysts' expectations of $1.42 in EPS on revenue of $781.7 million.

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Otonomy craters on drug failure

Finally, shares of Otonomy crashed 82.8% into penny-stock territory, following an announcement that the biopharmaceutical company's proposed treatment for Meniere's disease had failed in a pivotal phase 3 trial. The company believed that the steroid Otividex could be used to treat the chronic inner-ear condition that causes vertigo and ringing in the ears, and ultimately leads to progressive, permanent hearing loss. Patients treated with the drug reported a 58% reduction in vertigo, but unfortunately, those receiving the placebo described a 55% reduction. Due to the abysmal results, the company has suspended a similar trial that was occurring in Europe.

President and CEO David Weber, Ph.D., stated, "We are greatly disappointed by these results, and surprised by both the higher placebo response and lower OTIVIDEX improvement than observed in our previous trials. [...] Based on these results, we are immediately suspending all development activities for OTIVIDEX including the ongoing AVERTS-2 trial. "

Otividex winning approval from the U.S. Food and Drug Administration had been the primary incentive to own Otonomy shares. With those hopes dashed, it's no wonder investors are abandoning the stock in droves.

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